MEMC Electronics: From Laggard to Leader?

Here’s a classic tell: If a company delivers a disappointing quarter but its stock doesn’t sink lower and stay lower, that’s what Cramer would call “a pretty reliable sign” that said company is on the up and up.

MEMC Electronic Materials , a maker of polysilicon wafers, serves a perfect example. WFR on Nov. 1 reported poor numbers, with earnings per share coming in 3 cents less than the 13 cents expected on light revenues, but bounced back the next day from a 6-percent intraday decline to close down just 37 cents. And since then the stock has continued to inch higher and higher.

“MEMC didn’t go down and stay down on bad news,” Cramer said, “which tells me this was the last bad quarter and now the company is ready to rock going forward.”

Cramer predicted exactly this action in MEMC, whose wafers are the building blocks of solar panels and semiconductors. Back on Oct. 6 he recommended the stock as a play on the resurgence in solar power in response to higher oil prices—but only after this weak third quarter had been reported. What Cramer saw was promise in the fourth quarter and beyond, and he wanted viewers ready to buy when the time came.

Now he thinks WFR is a “steal,” most especially because of the “morbidly negative analyst community.” The company’s decision to pull its 2010 full-year guidance spooked the research community, but Cramer said unnecessarily so. That move came only because MEMC’s acquisition of SunEdison made it impossible to explain the earnings on an apples-to-apples basis. It was an accounting issue—that’s it—and the company actually announced its coming at the Q2 report.

At the same time, Cramer saw plenty of positives in that quarter. Management predicted strong demand, record production volumes and higher prices for its semiconductor wafer biz, which makes up about 55 percent of MEMC’s revenues. Solar wafers, up 31 percent sequentially even in the tough Q3, are expected to see higher volumes and prices versus the first half of 2010. A new factory in Malaysia should help to keep costs under control. And SunEdison is sitting on over 1,000 megawatts worth of projects in its pipeline, up from 700 megawatts in December 2009.

Oh, and that $380 million Italian project, Rovigo, the one that convinced Cramer to recommend MEMC in the first place, is 75 percent done. Rovigo represents about 65 percent of MEMC’s annual solar wafer shipments, which benefits both the solar wafer and MEMC’s solar panel business, and Cramer thinks there will be more projects like this going forward.

WFR’s trading at just 12.9 times next year’s too-low earnings estimates, despite its 18-percent long-term growth rate. Why? All because of those sourpuss analysts. Right now there are only nine “buy” ratings on the stock versus 13 “holds” and four “sells.” But Cramer thinks that could change once MEMC provides its much-talked-about 2011 guidance early next year. He predicted as much as $1.50 a share, or 50 cents more than expected, which would take this $12.78 stock to over $19, “even if the multiple stays at the same depressed level.”